ONGC has refuted claims that it is trying to take the proposed Barmer Refinery out of Rajasthan in order to establish a refinery either in Gujarat or Punjab.

The claim was reportedly made by Om Prakash Kedawat, a representative of Samata Party, who alleged that following the discovery of huge stock of oil in Barmer ONGC had no plans to establish a refinery there and was instead transporting the crude to other states through pipelines. This, he claimed, was causing a loss to Rajasthan.

Responding to this allegation, ONGC stated that it did not have plans to set up a greenfield refinery in Gujarat or Punjab. However, the oil and gas major has examined the viability of setting up a refinery near Barmer and is holding talks with the Rajasthan government and the central government on the outcome of the feasibility report.

Further, pending viability and investment decision on setting up of the refinery at Barmer, transportation of crude oil was being done by Cairn Energy through a pipeline from Barmer to Salaya, the nearest port. This was to ensure production of crude oil from Rajasthan block. The state government was also benefiting from the production through royalty accruing to it.

The pipeline for transportation of crude oil was laid only after the approval of the Ministry of Petroleum and Natural Gas, to facilitate its utilisation by existing refineries across the coast. Thus, the observation that it was transporting crude oil out of Barmer was erroneous, ONGC said.

ONGC and Cairn Energy are partners in the Production Sharing Contract of the pre-NELP block, RJ-ON-90/1, in Rajasthan. Cairn Energy is the operator of the block holding 70 per cent equity while ONGC has a minority holding of 30 per cent equity.

In view of the special characteristics of the oil, ONGC and Cairn Energy had, in June 2005, asked the petroleum ministry to explore the feasibility of setting up a wellhead refinery to process crude locally. Subsequently, ONGC carried out a feasibility study for a 7.5-million tpa capacity refinery at Barmer.

The issue of reexamining the viability of the refinery cropped up in August 2009 when the Prime Minister inaugurated commercial production of crude oil from the Rajasthan block.

As a follow-up, the Rajasthan government constituted the Tripathi Committee which gave its recommendations in April 2010. In line with its recommendations, ONGC once again examined the detailed feasibility of a 4.5-million tpa refinery, through Engineers India Ltd in 2010 and a subsequent financial appraisal by merchant banker SBI Caps in 2011. As per the financial analysis of the merchant banker, the project was not viable on a standalone basis and required an interest-free loan of approximately Rs 1,100 crore per annum for 15 years.

The Rajasthan government has conveyed its in-principle approval for 26 per cent equity stake in the project and to provide requisite fiscal incentives to ensure techno-commercial viability. It has, however, insisted that ONGC take majority stake and be the main promoter of the refinery. As a result, ONGC informed the petroleum ministry the need for roping in an existing PSU oil marketing company as lead partner in implementing the project.

Concurrently, ONGC has initiated discussions with HPCL which is considering the proposal favourably and has taken up the matter with the Ministry of Petroleum and Natural Gas. The decision on investment will be taken only after the outcome of the talks is clear.

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(Originally published June 18, 2012, in Projects Monitor.)